The vehemoth hotel group, Cresta Marakanelo Limited, last week announced its intention to seek shareholder approval to dissolve the Cresta Marakanelo Limited Employee Share Trust at the June 26 Annual General Meeting (AGM). Should the approval be granted, the process will see a buyback of 2%, or about 3 700 000, of Cresta shares owned by the Employee Share Trust and an adoption of a new bonus scheme, the Cresta Marakanelo Limited Phantom Share Scheme.
According to a circular to shareholders, the Employee Share Trust was formed in April 2010 to “incentivize and encourage employees of Cresta to contribute to and share in the growth and profitability of Cresta.” A total of 2% of Cresta shares were granted to the Employee Share Trust. They were acquired through a P5,365,000 loan advanced by Cresta and the terms of the agreement were that “the loan would be repaid from 50% of the dividends that accrued to the Cresta Employee Share Trust with interest set at the prevailing prime lending rate. The balance of the dividends would be paid to the employees of Cresta.”
While the Employee Share Trust achieved its investment objectives of yearly dividend distribution to Cresta employees, cashflows generated remained inadequate to service the loan and interest payments. “Furthermore the structure appears to be tax inefficient to Cresta as impairment losses on the loan and bonus distributions (essentially dividend payments) to employees are not tax deductible, whilst the interest earned on the loan is taxed,” read the circular in part. As at June 2015, the Employee Share Trust owed Cresta BWP 7 389 274, being interest and the initial P5 365 000 loan.
It was against this backdrop that the Board of Trustees proposed a dissolution of the Employee Share Scheme and replace it with the Cresta Phantom Share Scheme. The Board further proposed that the outstanding loan be passed as bad debt, the deficit of which will be borne by Cresta.
The proposed new scheme will serve a purpose to reward and motivate employees to build a long term career with the Company and to align the interest of employees with the shareholders of the Company to drive profitability, growth and shareholder value. The Board has proposed to grant a notional 2% of the company for the purpose of the Phantom Share Scheme but eligible employees who are entitled to benefit under the scheme will not become shareholders in the company and will not have voting rights. The circular highlights that; “The phantom share scheme is therefore a cash bonus scheme.”
Cresta runs 16 hotels across Botswana, Zimbabwe, and Zambia. The company listed on the Botswana Stock Exchange in June 2010, has over 184 million shares in issue and a market capitalization of over P175 million.